Mark and Doug are two Christian economists seeking to combine economics and theology in a fun, thoughtful, and inviting fashion. The name of the blog is a reference to Jesus' admonition to his disciples to be "wise as serpents and innocent as doves" (Matthew 10:16) when going forth into the world. We hope you join the conversation.

Tuesday, February 1, 2011

The Sword and the Covenant

Yesterday in our sustainability class Mark and I discussed Common Pool Resources and Public Goods. These two categories of goods are listed in the 2x2 matrix from my earlier post titled "public goods". But, in this blog post I'm talking about Common Pool Resources which characterize many environmental goods: aquifers, wildlife, forests, fisheries, oil, grazing pastures, etc.

Common Pool Resources are non-excludable but rivalrous. This means that you cannot exclude people from consumption (non-excludable), but, each persons consumption subtracts from your ability to consume (rivalrous). To see an example check out the video below from Curb Your Enthusiasm (watch until about 1:32): ***I changed the embedded video to a link***

The caviar is a common pool resource. More than sheer comedic shtick, what Larry David said has a corresponding truth in the world beyond television ---and more important than caviar. How do people manage natural resources when there is an absence of private property? The popular prediction came from scientist Garrett Hardin. He presumed that each person, acting in their own self interest, would lead their sheep to graze until there was no more grass on the meadow. This would result in a "tragedy of the commons" where the resource would be depleted beyond its ability for future use.

Yesterday, we discussed Elinor Ostrom's work. She is the first female Nobel Prize winner in Economics. She discusses Hardin's idea and her idea in the following video.

The ability to manage the commons fundamentally comes down to two public goods: covenant and sword. By covenanting, or coming up with a set of rules for the commons, people are providing the public good of order. By monitoring the usage of other members of the community and punishing them when they do not abide by the agreement, people are providing the public good of scrutiny.

One of my own vivid recollections from doing fieldwork in the Middle Hills of Nepal during the 1990s was seeing an enclosed field with a domesticated cow in the center of a village.In response to my question as to what was happening here, my Nepali colleagues indicated that
the enclosure was a kind of “cow jail.” When three adult members of the local farmer-managed
irrigation system agreed that a member had not followed water harvesting or maintenance rules
after receiving a verbal warning, they were authorized to bring a cow from the errant farmer’s
fields to the village area. In an agricultural village, everyone knows who owns a cow. Thus,
while the cow was grazing in the center of the village producing milk for village council to
distribute, all of the farmer’s neighbors were learning about the farmer’s nonperformance. Once
the farmer had paid a modest fee for breaking the rules, the cow would be returned, so this
second-stage sanction was not severe in the long run. Needless to say, however, most members
of the irrigation system preferred to follow the rules rather than being embarrassed by this form
of a graduated sanction.